Heathrow Slot Sale Earned Kenya Airways Sh5.3 Billion

National carrier Kenya Airways earned Sh5.3 billion from the sale of the prized London Heathrow landing slot.

A Kenya Airways plane at the Jomo Kenyatta International Airport. PHOTO | FILE

The figure was revealed Wednesday in a report by Standard Investment Bank (SIB) based on an analysts’ briefing with the airline.

“The disposal of KQ’s London morning arrival slot was made in conjunction with Air France, which sold a departure slot in the morning, with the transaction fetching KQ $53m (Sh5.3 billion), approximately $15 million more than the highest similar transaction for Heathrow Airport,” read the SIB report. The Kenya Airways management declined to reveal the transaction price when news of sale of the slot emerged in March.

KQ is said to have disposed of the early morning slot at Heathrow to Oman Air and instead leased an afternoon one, in a bid to cut the hours its plane remained grounded at the busy airport.

The airline has been selling and leasing out its assets as part of a turnaround plan to reverse a Sh25.7 billion after-tax loss for the year ended March 2015.

It sold two Boeing 777-200s and sub-leased two Boeing 787-8s to Oman Air as part of the asset disposal plan.
Three Kenya Airways B 777-300s are in the final stages of being sub-let.

Once complete, the disposal is expected to deliver Sh9.6 billion per year on fleet management cost savings. KQ chief executive officer Mbuvi Ngunze had in an article earlier this year, stated that the sale and sub-leasing of the planes would reduce fleet costs by about Sh700 million a month.

Fuel derivatives

“The airline also mentioned that it would exit the last of the old fuel derivatives by October 2016, which will now see the airline benefiting fully from low fuel costs onwards,” said the report.

The firm took its contracts when the price of the commodity was much higher than it is today. Oil is currently selling at around $34 per barrel having seen a fall from peaks of above $100 a barrel in June 2014.

The loss-making carrier earmarked a piece of land in Embakasi, Nairobi for sale in January last year but the transaction is yet to be finalised. Mr Ngunze told the Senate Committee on Roads and Transportation last week that, the land is currently rented by a third party with go-downs and warehouses.

In November last year, Mr Ngunze had intimated that the airline was at an advanced stage of negotiations on the land with a bidder and that the deal would be closed in two months.

The troubled carrier is set to send home 600 employees at the beginning of next month, and has also been redeploying some of its staff to other airlines. The impending layoff of workers who represent 15 per cent of its total workforce, follows another staff reduction in 2012 that affected 599 workers.

According to the SIB brief, the management attributed the failure of the 10-year growth plan titled Project Mawingu to a combination of poor commercial execution, which was exacerbated by fire at the airport, terrorism warnings and the Ebola crisis in West Africa.

On the KQ/KLM commercial agreement, the management noted that the arrangement had been profitable since inception in 1998, and only made losses in 2011.